Inflation stays flat in April

Prices were flat in Australia in April, after an ongoing deceleration in inflation that leaves the way open for the central bank to cut interest rates further, a survey shows.

The TD Securities/Melbourne Institute inflation gauge was unchanged in April, following a 0.1 per cent fall in March and a 0.7 per cent rise in February.

Over the year to April, gauge was up 2.1 per cent - marking its slowest annual increase since May 2005 - and is now testing the lower end of the Reserve Bank of Australia's two to three per cent target band.

"The deceleration in inflation is pronounced, with inflation dropping from a recent annual peak of 4.8 per cent in June 2008," the survey said.

During the of April, rises in the prices of health, holiday travel and accommodation and house purchases was offset by falls in the prices of fruit and vegetables, transport and rental accommodation.

Fuel prices rose by 1.4 per cent in April and but were around 18 per cent lower from a year ago, the survey said.

Housing rents fell by about two per cent in April and was up about six per cent from April 2008.

"Inflation is all but dead, even allowing for what was clearly a temporary exchange rate induced blip in prices in January and February," TD Securities senior strategist Annette Beacher said.

The trimmed mean measure of the inflation gauge was also unchanged in April, after a 0.1 per cent rise in March.

Over the year, it was up 2.4 per cent.

The trimmed mean inflation rate represents the weighted mean of price movements in the central 90 per cent of components in the gauge.

"The recession is crushing pricing power to the point where the overall level of consumer prices has recorded a net change of just 0.3 per cent over the past seven months - that's an average monthly rise of less than 0.05 per cent," Ms Beacher said.

"The recession is killing inflation and now that the Australian dollar has stabilised, Australia is confronting a greater threat of deflation, than any inflation risks."

Ms Beacher said inflation will not stand in the way of the Reserve Bank of Australia cutting interest rates further.

"On economic grounds, there is nothing standing in the way of the RBA board cutting interest rates at its meeting tomorrow," Ms Beacher said in a statement.

"Whatever the decision tomorrow, there seems little doubt that rates are on track to get to two per cent in the second half of 2009."

The RBA board meets on Tuesday to discuss monetary policy, but is not expected to vote for any change.

The cash interest rate currently stands at a 49 year low of three per cent.

"With inflation dead and buried, the only issues are the path to which rates get to that level and whether there is a case for rate cuts to below two per cent as the recession deepens," Ms Beacher said.

The RBA's rates decision is due at 12.30pm tomorrow.

Nineteen of 20 economists surveyed by AAP expected the cash rate to remain on hold.

Melbourne Institute Professor Don Harding said price pressures in April weakened, with prices rising in 25 spending groups and falling in 20, for a balance of five rises.

"This is the lowest net balance figure of 19 months," he said in a statement.

"If this continues, it will signal a shift from inflation driven to petrol prices to a broadly based easing in inflation pressure."